RENATO V. DIAZ and AURORA MA. F.

TIMBOL
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE

FACTS: Petitioners... filed this petition for declaratory relief... assailing the validity of the impending
imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of...
tollway operators.
Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as regular
users of tollways in stopping the BIR action. Additionally, Diaz claims that he sponsored the approval of
EVAT Law... and... the 1997 National Internal Revenue Code... at the House of Representatives.  Timbol,
on the other hand, claims that she served as Assistant Secretary of the Department of Trade and Industry
and consultant of the Toll Regulatory Board (TRB) in... the past administration.
Petitioners allege that the BIR attempted during the administration of President Gloria Macapagal-Arroyo
to impose VAT on toll fees. The imposition was deferred, however, in view of the consistent opposition
of Diaz and other sectors to such move. But, upon President Benigno C.
Aquino III's assumption of office in 2010, the BIR revived the idea and would impose the challenged tax
on toll fees beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees
within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user's tax," not a sale
of services; that to impose VAT on toll fees would amount to a... tax on public service; and that, since
VAT was never factored into the formula for computing toll fees, its imposition would violate the non-
impairment clause of the constitution.
On August 13, 2010 the Court issued a
TRO... enjoining the implementation of the VAT.
The Court required the government, represented by respondents Cesar V. Purisima, Secretary of the
Department of Finance, and Kim S. Jacinto-Henares, Commissioner of
Internal Revenue, to comment on the petition within 10 days from notice.
Later, the Court issued another resolution treating the petition as one for prohibition.
The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees,
including tollway operations, except where the law provides... otherwise; that the Court should seek the
meaning and intent of the law from the words used in the statute; and that the imposition of VAT on
tollway operations has been the subject as early as 2003 of several BIR rulings and circulars.
The government also argues that petitioners have no right to invoke the non-impairment of contracts
clause since they clearly have no personal interest in existing toll operating agreements... between the
government and tollway operators.
Finally, the government contends that the non-inclusion of VAT in the parametric formula for computing
toll rates cannot exempt tollway operators from VAT.
Issues:
Whether or not the imposition of VAT on tollway operators... is not administratively feasible and cannot
be... implemented.
Ruling:
Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system
should be capable of being effectively administered and enforced with the least inconvenience to the
taxpayer. Non-observance of the canon, however, will not render a tax... imposition invalid "except to the
extent that specific constitutional or statutory limitations are impaired."
Thus, even if the imposition of VAT on tollway operations may seem burdensome to implement, it is not
necessarily invalid unless some aspect... of it is shown to violate any law or the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway
operations. Any declaration by the Court that the manner of its implementation is illegal or
unconstitutional would be premature. Although the transcript of the August 12, 2010 Senate... hearing
provides some clue as to how the BIR intends to go about it,... the facts pertaining to the matter are not
sufficiently established for the Court to pass judgment on. Besides, any concern about how the VAT on
tollway operations will be enforced... must first be addressed to the BIR on whom the task of
implementing tax laws primarily and exclusively rests. The Court cannot preempt the BIR's discretion on
the matter, absent any clear violation of law or the Constitution.
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT
law's coverage when she sought to impose VAT on tollway operations.  Section 108(A) of the Code
clearly states that services of all other franchise grantees are subject to
VAT, except as may be provided under Section 119 of the Code. Tollway operators are not among the
franchise grantees subject to franchise tax under the latter provision. Neither are their services among the
VAT-exempt transactions under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege,
then it would have been well for the law to clearly say so.  Tax exemptions must be justified by clear
statutory grant and based on language in the law too plain to be... mistaken.

Villanueva v. City of Iloilo

G.R. No. L-26521 December 28, 1968

FACTS: On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing
license tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house,
partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer,
P24.00 per apartment; (3) tenement house, partly or wholly engaged in business in any other streets,
P12.00 per apartment. The validity and constitutionality of this ordinance were challenged by the spouses
Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses containing 34
apartments. On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the
passage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority
or power to enact an ordinance similar to that previously declared by this Court as ultra vires, thus
enacted an “Ordinance Imposing Municipal License Tax on Persons Engaged in the Business of
Operating Tenement-Houses”.

ISSUE:
Whether or not the tax imposed by the ordinance falls within any of the exception provided in Section 2
of the Local Autonomy Act, thus imposing a double taxation.

HELD:
It is necessary to determine the true nature of the tax. The appellees strongly maintain that it is a
“property tax” or “real estate tax,” and not a “tax on persons engaged in any occupation or business or
exercising privileges,” or a license tax, or a privilege tax, or an excise tax. The tax in question is not a real
estate tax. A real estate tax is a direct tax on the ownership of lands and buildings or other improvements
thereon and is payable regardless of whether the property is used or not. The tax is usually single or
indivisible, although the land and building or improvements erected thereon are assessed separately,
except when the land and building or improvements belong to separate owners. It is a fixed proportion of
the assessed value of the property taxed, and requires, therefore, the intervention of assessors. It is
collected or payable at appointed times, and it constitutes a superior lien on and is enforceable against the
property subject to such taxation, and not by imprisonment of the owner. The tax imposed by the
ordinance in question does not possess the aforestated attributes. Clearly, therefore, the tax in question is
not a real estate tax. “The spirit, rather than the letter, or an ordinance determines the construction thereof,
and the court looks less to its words and more to the context, subject-matter, consequence, and effect.
Accordingly, what is within the spirit is within the ordinance although it is not within the letter thereof,
while that which is in the letter, although not within the spirit, is not within the ordinance.” It is within
neither the letter nor the spirit of the ordinance that an additional real estate tax is being imposed,
otherwise, the subject-matter would have been not merely tenement houses. It is plain from the context of
the ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a
form of business or calling. Thus, there is no double taxation.

REPUBLIC CEMENT CORPORATION

vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS

FACTS: Petitioner Republic Cement Corporation is a domestic corporation engaged in the mining, from
mineral lands held by it under lease and/or "mines temporary permit" from the Government, of limestone,
silica and other minerals used in the production of cement.

For the period from May 1957 to December 1959, petitioner had paid royalties and/or ad valorem taxes
based upon the value of the raw materials or minerals it had extracted and later used in the manufacture of
cement, as determined by the "cost of production" or extraction of said materials or minerals. .Upon the
theory that said royalties and/or ad valorem taxes are assessed on the market value of the cement
produced and sold by petitioner as finished product, the Commissioner of Internal Revenue — hereinafter
referred to as respondent — demanded from petitioner the payment of P79,876.72, as deficiency ad
valorem tax and surcharge, based upon the amount it had realized from the sale of cement from
September to December 1959.

Petitioner moved for a reconsideration, but, instead of printing the same, respondent increased the
assessment to P498,653.04, covering the period from May 1957 to August 1959, on the basis of
petitioner's gross receipts from the sale of cement. 1 On appeal taken by petitioner, this increased
assessment was upheld by the Court of Tax Appeals. Hence, this petition for review of herein petitioner.

The questions for determination are:

(1) Whether the ad valorem tax in question should be based on the value of the finished product,
as held by respondent and the Court of Tax Appeals, or upon the value of the raw materials or
minerals used in the manufacture of said finished products, upon extraction of said raw materials
or minerals, as contended by the petitioner;

(2) Whether said value shall be determined by the cost of extraction of the raw materials or
minerals from the land or mines; or by the market value of said raw materials or minerals;
 (3) Whether the aforementioned value shall include that of the paper bag container in which the
cement, as a finished product, is placed for distribution and/or sale;

(4) Whether the disputed assessment violates the terms of petitioner's lease contract with the
government, pursuant to which the 1-½% royalty therein stipulated shall be paid for the privilege
of exploring, mining, extracting and disposing of said raw materials or minerals, based on the
"actual market value" of the gross output of limestone, which royalty shall be due and payable
upon the removal of the mineral products from the locality where mined; and

(5) Whether petitioner is liable for the payment of surcharge.

The first question is far from being one of first impression. It has already been settled adversely to
respondent herein. In CEPOC v. Commissioner of Int. Revenue,2 this Court, speaking through Mr. Justice
Barrera, held:

Ad valorem tax is a tax not on the minerals, but upon the privilege of severing or extracting the
same from the earth, the government's right to exact the said impost springing from the Regalian
theory of State ownership of its natural resources....

... While cement is composed of 80% minerals, it is not merely an admixture or blending of raw
materials, as lime, silica, shale and others. It is the result of a definite process — the crushing of
minerals, grinding, mixing, calcining, cooling, adding of retarder or raw gypsum. In short, before
cement reaches its saleable form, the minerals had already undergone a chemical change through
manufacturing process. This could not have been the state of "mineral products" that the law
contemplates for purposes of imposing the ad valorem tax. ... this tax is impose on the privilege
of extracting or severing the minerals from the mines. To our minds, therefore, the inclusion of
the term mineral products is intended to comprehend cases where the mined or quarried elements
may not be usable in its original state without application of simple treatments ... which process
does not necessarily involve the change or transformation of the raw materials into a composite
distinct product. ... While the selling price of cement may reflect the actual market value of
cement, said selling price cannot be taken as the market value also of the minerals composing the
cement. And it was not the cement that was mined, only the minerals composing the finished
product.

We ratified this view in denying the motion for reconsideration of our decision in the same case. In the
language of Mr. Justice Reyes (J.B.L.):

... The ad valorem tax in question should be based on the actual market value of quarried
minerals used in producing cement, ... the law intended to impose the ad valorem tax upon the
market value of the component mineral products in their original state before processing into
cement. ... The law does not impose a tax on cement qua cement, but or mineral products, at least
80% of which must be minerals extracted by the lessee, concessionaire or owner of mineral lands.

The Court did not, and could not, rule that cement is a manufactured product subject to sales tax,
for the reason that such liability had never been litigated by the parties. What it did declare is that,
while cement is a mineral product, it is no longer in the state or condition contemplated by the
law; hence the market value of the cement could not be the basis for computing the  ad
valorem tax, since the ad valorem tax is a severance tax, i.e., a charge upon the privilege of
severing or extracting minerals from the earth, (Dec. p. 4) and is due and payable upon removal
of the mineral product from its bed or mine.
Soon later, we had occasion to reiterate that view. 3

On the second question, petitioner's practice of computing the ad valorem tax on the basis of the "cost of
production" of the raw materials or minerals extracted from its mines, contravenes Section 243 of the Tax
Code, reading:

Ad valorem taxes on output of mineral lands not covered by lease. — There shall be assessed and
collected on the actual market value of the annual gross output of the minerals or mineral
products extracted or produced from all mineral lands, not covered by lease, an  ad valorem tax,
payable to the Commissioner of Internal Revenue, in the amount of one and one-half per centum
of the value of said output.

Before the minerals or mineral products are removed from the mines, the Commissioner of
Internal Revenue or his representatives shall first be notified of such removal on a form
prescribed for the purpose.

Pursuant to this provision, the ad valorem tax is computed on the "actual market value of the minerals or
mineral products extracted or produced from all mineral lands". In other words, the assessment shall be
based, not upon the cost of production or extraction of said minerals or mineral products, but on the price
which the same — before or without undergoing a process of manufacture — would command in the
ordinary course of business, that is to say, when offered for sale by one willing to sell, but not under
compulsion to sell, and purchased by another who is willing to buy, but under no obligation to purchase.

As a consequence, the third question must be settled in favor of petitioner herein. In other words, the cost
of the paper bag container, in which the finished product or cement is placed, for sale to the public,
should not be included in the computation of the ad valorem tax and/or royalty collectible by the
Government.

We need not discuss the alleged impairment of the obligations under petitioner's lease contract with the
Government4 — involved in the fourth question — inasmuch as said contract is in conformity with our
interpretation of section 243 of the Tax Code, although not in accord with that of respondent herein. It
should be understood, however, that the assessment shall be based on the actual market value of the
mineral products upon extraction thereof from the mines, not on the cost of such extraction.

As regards the surcharge of 25% included in the disputed assessment, petitioner maintains that it is not
liable therefor, because it had acted in good faith. More specifically, petitioner would have us believe that
it merely did what it had done "in the early part of 1957," namely, paying the ad valorem tax "on the
value of the minerals extracted from its mines," to which — petitioner intimates — respondent had
seemingly acquiesced. Predicated upon this premise, petitioner claims to have acted in good faith,
because of which — it concludes — it should not be required to pay the statutory surcharge of 25%, or,
the same should, at least, be reduced.

Insofar as the difference between the value of cement, as a finished product, and that of the minerals or
raw materials extracted from its mines is concerned, there can be no surcharge, for, as above stated, the
assessment of the 1-½% ad valorem tax must be based on the value of said raw materials, upon extraction
thereof from the land, not on the value of the said finished product.

As regards, however, the difference between the cost of extraction of said raw materials, upon which
petitioners returns were based, and the actual market value of said raw materials, on which the tax is due,
petitioner can not claim good faith. Indeed, the language of said section 243 of the Tax Code is plain,
clear and simple. It explicitly declares that the tax shall be assessed and collected on the "actual market
value ... of the minerals and mineral products extracted or produced from all mineral lands." Petitioner
has not even tried to show it earnestly believed that "actual market value" and "cost of production" or
"cost of extraction" have identical connotations. Moreover, there is every reason to believe that it knew
the difference between the one and the other. Its own brief reveals that it had a correct notion of the
aforementioned provision of its lease contract with the Government, which is substantially identical to the
import of said section 243 of Tax Code.

At any rate, pursuant to the second paragraph of section 245 of the same Code:

In case the royalties or ad valorem taxes are not paid within the period prescribed above, there
shall be added thereto a surcharge of twenty-five per centum. Where a false or fraudulent return is
made, there shall be added to the royalties or ad valorem taxes a surcharge of fifty per centum of
their amount. The surcharge so added shall be collected in the same manner and as part of the
royalties or ad valorem taxes, as the case may be.

The 25% surcharge thus prescribed for the late payment of the royalties and the  ad valorem tax, when
contrasted with the 50% surcharge imposed "where a false or fraudulent return is made," strongly
suggests that bad faith is not essential for the imposition of the 25% surcharge.

This becomes more apparent when we consider that the surcharge is increased to 50%, where the return is
"false," a condition which may exist without bad faith. In fact, if it existed, the return would be, not
merely "false," but, also, fraudulent.

Then again, said section 245 does not merely vest in respondent the authority or discretion to impose the
25% surcharge. The same is imposed by law itself . In this respect it is analogous to the 25% surcharge
prescribed for failure to pay the "percentage tax on any business" within the time fixed by law, 5 the
collection of which has been held to be mandatory and on which respondent has no discretion. 6

IN CONCLUSION, petitioner is bound to pay the 1-12% ad valorem tax on the actual market value of the
minerals or mineral products extracted from its mines, with a 25% surcharge for failure to make said
payment within the prescribed time. No evidence having been introduced, however, on said actual market
value, the records are hereby remanded to the Court of Tax Appeals, for the reception of evidence and
further proceedings not inconsistent with this decision. The costs of this instance shall be borne by
petitioner, Republic Cement Corporation. It is so ordered.

Cu Unjieng vs. Patstone GR 16254, 21 February 1922

First Division, Ostrand (J): 4 concur, 1 took no part

Facts: G. A. Cu Unjieng desired to erect a warehouse in Azcarraga street was denied a building permit
until he shall have made provision for the construction of an arcade over the sidewalk in front of the
building, and until he shall have further complied with Section 1 of Ordinance 301 of the City of Manila,
i.e. payment of 1/2 of the assessed value of the city land. Cuunjieng filed a petition for a writ of
mandamus to compel the city engineer to issue the permit.
Issue: Whether the fee was validly imposed.
Held: The allowable amount of license fee or tax depends so much on the special circumstances of each
particular case. Adjudications, however, appear to recognize 3 classes of licenses (license forregulation of
useful occupations or enterprises; licenses for the regulation of non-useful occupations or enterprises; and
licenses for revenue only), which should be taken into consideration in determining the reasonableness of
the license fee. Herein, in imposing a fee equal to 1/2 of the assessed value of the portion of the sidewalk
covered by the arcade, the municipal board exceeded its powers. The construction of buildings is a useful
enterprise and the amount of the license fee should therefore be limited to the cost of licensing,
regulating, and surveillance. As it does not appear such cost would materially increase through the
construction of the arcade.

Physical Therapy Org. vs. Municipal Board G.R. No. L-10448, August 30, 1957

Facts: The petitioner-appellant, an association of registered massagists and licensed operators of massage
clinics in the City of Manila and other parts of the country, filed an action in the Court of First Instance of
Manila for declaratory judgment regarding the validity of Municipal Ordinance No. 3659, promulgated by
the Municipal Board and approved by the City Mayor. To stop the City from enforcing said ordinance,
the petitioner secured an injunction upon filing of a bond in the sum of P1,000.00. A hearing was held,
but the parties without introducing any evidence submitted the case for decision on the pleadings,
although they submitted written memoranda. Thereafter, the trial court dismissed the petition and later
dissolved the writ of injunction previously issued. The petitioner appealed said order of dismissal directly
to this Court. In support of its appeal, petitioner-appellant contends among other things that the trial court
erred in holding that the Ordinance in question has not restricted the practice of massotherapy in massage
clinics to hygienic and aesthetic massage, that the Ordinance is valid as it does not regulate the practice of
massage, that the Municipal Board of Manila has the power to enact the Ordinance in question by virtue
of Section 18, Subsection (kk), Republic Act 409, and that permit fee of P100.00 is moderate and not
unreasonable. Inasmuch as the appellant assails and discuss certain provisions regarding the ordinance in
question, and it is necessary to pass upon the same, for purposes of ready reference, we are reproducing
said ordinance in toto.

Issue: Whether the license fee of P100.00 for operator of the Ordinance is unreasonable, nay,
unconscionable.

Held: No, The amount of the fee or charge is properly considered in determining whether it is a tax or an
exercise of the police power. The amount may be so large as to itself show that the purpose was to raise
revenue and not to regulate, but in regard to this matter there is a marked distinction between license fees
imposed upon useful and beneficial occupations which the sovereign wishes to regulate but not restrict,
and those which are inimical and dangerous to public health, morals or safety. In the latter case the fee
may be very large without necessarily being a tax. (Cooley on Taxation, Vol. IV, pp. 3516-17;
underlining supplied.) Evidently, the Manila Municipal Board considered the practice of hygienic and
aesthetic massage not as a useful and beneficial occupation which will promote and is conducive to public
morals, and consequently, imposed the said permit fee for its regulation.
 Apostolic Prefect of Mountain Province v City Treasurer of Baguio City GR No 47252, April 18,
1941

FACTS: The Apostolic Prefect is a corporation sole, of religious character, organized under the
Philippine laws, and with residence in Baguio. The City imposed a special assessment against properties
within its territorial jurisdiction, including those of the Apostolic Prefect, which benefits from its drainage
and sewerage system. The Apostolic Prefect contends that its properties should be free from tax.

ISSUE: Is the Apostolic Prefect exempt from paying?

RULING: No, it is liable.

In its broad meaning, tax includes both general taxes and special assessment. Yet actually, there is a
recognized distinction between them in that assessment is confined to local impositions upon property for
the payment of the cost of public improvements in its immediate vicinity and levied with reference to
special benefits to the property assessed.
A special assessment is not, strictly speaking, a tax; and neither the decree nor the Constitution exempt
the Apostolic Prefect from payment of said special assessment.

Furthermore, arguendo that exemption may encompass such assessment, the Apostolic Prefect cannot
claim exemption as it has not proven the property in question is used exclusively for religious purposes;
but that it appears that the same is being used to other non-religious purposes.

Thus, the Apostolic Prefect is required to pay the special assessment. 

Rep. vs Patanao L-22317 – July 21, 1967

Facts: In the complaint filed by the Republic of the Philippines, through the Solicitor General, against Pedro B.
Patanao, it is alleged that defendant was the holder of an ordinary timber license with concession at Esperanza,
Agusan, and as such was engaged in the business of producing logs and lumber for sale during the years 1951-
1955; that defendant failed to file income tax returns for 1953 and 1954, and although he filed income tax returns for
1951, 1952 and 1955, the same were false and fraudulent because he did not report substantial income earned by
him from his business; that in an examination conducted by the Bureau of Internal Revenue on defendant's income
and expenses for 1951-1955, it was ascertained that the sum of P79,892.75, representing deficiency.
Defendant moved to dismiss the complaint on two grounds, namely: (1) that the action is barred by prior judgment,
defendant having been acquitted in criminal cases Nos. 2089 and 2090 of the same court, which were prosecutions
for failure to file income tax returns and for non-payment of income taxes; and (2) that the action has prescribed.

Issue:

1. Whether or not the action is barred by prior judgment in criminal cases nos. 2089 and 2090
2. Whether or not the action has prescribed
Ruling:

1. No. The two cases are circumscribed by factual premises which are diametrically opposed to each other,
and are founded on entirely different philosophies. Under the Penal Code, the civil liability is incurred by
reason of the offender's criminal act. Stated differently, the criminal liability gives birth to the civil obligation
such that generally, if one is not criminally liable under the Penal Code, he cannot become civilly liable
thereunder. The situation under the income tax law is the exact opposite. Civil liability to pay taxes arises
from the fact, for instance, that one has engaged himself in business, and not because of any criminal act
committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. The
incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not
imposing civil indemnity on the criminal infractor of the income tax law. Another reason, of course, is found
in the fact that while section 73 of the National Internal Revenue Code has provided the imposition of the
penalty of imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a return thereof,
it failed to provide the collection of said tax in criminal proceedings. The only civil remedies provided, for the
collection of income tax, in Chapters I and II, Title IX of the Code and section 316 thereof, are distraint of
goods, chattels, etc. or by judicial action, which remedies are generally exclusive in the absence of a
contrary intent from the legislator. (People vs. Arnault, G.R. No. L-4288, November 20, 1952; People vs.
Tierra, G.R. Nos. L-17177-17180, December 28, 1964) Considering that the Government cannot seek
satisfaction of the taxpayer's civil liability in a criminal proceeding under the tax law or, otherwise stated,
since the said civil liability is not deemed included in the criminal action, acquittal of the taxpayer in the
criminal proceeding does not necessarily entail exoneration from his liability to pay the taxes. It is error to
hold, as the lower court has held, that the judgment in the criminal cases Nos. 2089 and 2090 bars the
action in the present case. The acquittal in the said criminal cases cannot operate to discharge defendant
appellee from the duty of paying the taxes which the law requires to be paid, since that duty is imposed by
statute prior to and independently of any attempts by the taxpayer to evade payment. Said obligation is not
a consequence of the felonious acts charged in the criminal proceeding, nor is it a mere civil liability arising
from crime that could be wiped out by the judicial declaration of non-existence of the criminal acts charged.
(Castro vs. The Collector of Internal Revenue, G.R. No. L-12174, April 20, 1962).

2. No. Regarding prescription of action, the lower court held that the cause of action on the deficiency income
tax and residence tax for 1951 is barred because appellee's income tax return for 1951 was assessed by
the Bureau of Internal Revenue only on February 14, 1958, or beyond the five year period of limitation for
assessment as provided in section 331 of the National Internal Revenue Code. Appellant contends that the
applicable law is section 332 (a) of the same Code under which a proceeding in court for the collection of
the tax may be commenced without assessment at any time within 10 years from the discovery of the falsity,
fraud or omission.
The complaint filed on December 7, 1962, alleges that the fraud in the appellee's income tax return for 1951,
was discovered on February 14, 1958. By filing a motion to dismiss, appellee hypothetically admitted this
allegation as all the other averments in the complaint were so admitted. Hence, section 332 (a) and not
section 331 of the National Internal Revenue Code should determine whether or not the cause of action of
deficiency income tax and residence tax for 1951 has prescribed. Applying the provision of section 332 (a),
the appellant's action instituted in court on December 7, 1962 has not prescribed.